Private Label Credit For Furniture Retailers

Editor’s Note: This information on private label credit was contributed by Marc Sczesnak is president of TD Retail Card Services. A more expansive article on private label credit will appear in a future issue.

For furniture retailers, private label credit card programs can be an effective way to build sales in a competitive environment in which ease and convenience are paramount.

These programs make it easier for both in-store and online shoppers to buy big-ticket items—all with minimal risk and few, if any, headaches for the furniture retailer. The programs work in a straightforward manner: Customers fill out an application; that data gets electronically submitted to a third-party provider for immediate review and an on-the-spot credit decision; and then the provider gives the retailer an account number and a maximum dollar amount for the purchase. Some providers give retailers special terminals for processing card transactions. Others prefer Web-based or POS-integrated processing. Merchants typically receive funds for private-label card transactions from the provider within 48 hours; remittances cover the cost of the merchandise purchased by the account holder, minus a transaction fee that can range from under 1 percent all the way up to 9 percent. The provider holds all loans, manages all customer accounts, sends monthly statements to cardholders, and assumes the risk if customers fail to pay their bills.

Particularly in today’s economy, consumers who want to buy high-ticket items may hesitate to do so with their bankcards because of the high interest rates. Others may have “maxed out” their credit. A private label program gives qualified customers another option. Combined with “zero percent interest” and other special financing deals, this can increase sales and traffic and make it easier to move higher-ticket items out the door. Private label credit programs offer the added benefit of increasing customer loyalty, in part because they give shoppers a more pleasant experience.

Private label credit card programs can be custom-designed to fit the needs of large and small furniture retailers alike. Options geared toward large retailers include loyalty programs tied to spending on the store’s card.

Meanwhile, smaller retailers can take advantage of umbrella or consortium programs that yield an extra competitive edge against major industry players through shared promotional financing. Such programs also enable smaller retailers to leverage the aggregate volume of the group to drive competitive pricing on transaction processing.

Yet another advantage comes in the area of consumer marketing. Between “statement stuffers” sent with monthly bills and customized mailings directed to specific customers, private label cards provide a means to regularly communicate with your best consumers—or to turn occasional shoppers into more frequent buyers.

While private label credit programs tend to work the same way, each retailer must weigh the potential pros and cons, particularly when it comes to the offerings of individual providers. Factors that vary from provider to provider and include things like the cost per transaction, applicant approval rates, credit limits, minimum application and volume requirements, the terms and conditions for account holders, and more subjective issues like the quality of customer service to retailers and consumers alike. Clearly, furniture retailers need to do their homework before taking the private label plunge.